US. Reforming public pensions
By Nadeem Jeddy
Government employees need lifelong incomes to stay independent and promote public interest. Private employees serve no higher cause.
Replacing public pensions with traditional defined contribution (DC) schemes like Voluntary Pension System (VPS) and provident funds (PFs) will destroy the security of lifelong incomes. Government employees will be forced to take greater interest in personal finance. New forms of malfeasance will emerge that will be hard to catch and difficult to reverse.
A better alternative would be to offer a superannuation fund with tontine features. A tontine fund pays lifelong income but does not allow any withdrawals. In this sense, it is quite similar to defined benefit (DB) plans and insurance annuities.
There are market and behavioral aspects that support tontines over other income solutions
The major difference is that a tontine fund transfers investment and group longevity risk from corporate sponsors and insurance companies to its participants. Sponsors do not guarantee payments and do not carry funding liability.
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